Story Case

John Black made a contract with the Hayes Lumber Company, representing himself to be the agent of the White Construction Company. The contract was for the delivery of lumber, by the lumber company, to a building in construction by the White company. Black was the agent for the construction company, but acted outside of the scope of his authority, in making this contract, and his company refused to accept the lumber upon delivery. The Hayes company brings suit against Black on the contract. Black puts in defense, the fact that no contract was made with him personally, and that he was an agent. Can the Hayes company recover in this suit?

Ruling Court Case. White Vs. Madison, Volume 26 New York Reports, Page 117

It appeared from the evidence in this case that the defendant, Madison, as a deputy sheriff, had seized property under an execution. Pending litigation, as to who owned the property, it remained in possession of the deputy sheriff. Without the knowledge or consent of the sheriff, Madison had the property insured, he gave a note for the premium, signed thus: "N. D. Snow, Sh'ff Chan. Co., by A. Z. Madison, Dep. Sh'ff."

This was an action, by White, as receiver for the insurance company, to recover upon the note. It was admitted, by the defendant, that he had no authority, unless it was implied from the fact that he was deputy sheriff. As to this, the Court was of the opinion that no such power was implied. Then the defendant contended that he was not liable, because the company knew that he did not intend to be bound by the contract, but was making it as an agent.

The Court was of the opinion that he was liable - not upon the note itself, but for damages for a breach of implied warranty, viz., that he had power to bind the principal.

Mr. Justice Selden, on this point, said: "In those cases, and I think in all cases, where one, pretending to be agent, has contracted as such without authority from the principal, the party contracted with, on learning the facts, must have the right to repudiate the contract and to hold the assumed agent immediately responsible for damages, without waiting for the time when an action might be maintained on the contract itself, and the damages must be measured, not by the contract, but by the injury resulting from the agent's want of power. Whenever a person enters into a contract as agent for another, he warrants his own authority, unless very special circumstances, or express agreement, relieve him from that responsibility."

Ruling Law. Story Case Answer

Whenever an agent represents to a third person that he has authority to make a contract, and no such authority exists, the agent is not personally liable on the contract, but is liable for a breach of warranty for making the representation as to his power. He is not liable on the contract, because it was not the intention of the parties that a contract should exist with him. The money, which may be collected from the agent by way of damages for the misrepresentation, depends upon the actual loss suffered.

In the Story Case given above, the Hayes company cannot recover against Black on the contract. The company should have brought suit against him for breach of warranty, and, in this way, recover the actual losses suffered.

The liability of an agent is the same for acting beyond the scope of his authority, or for acting without any authority.